- Enjoying your retirement includes being confident about the amount you spend every year.
- The 4 percent rule for annual retirement withdrawals used to be the gold standard — but today, flexibility is key.
- Your advisor can tailor a retirement withdrawal strategy based on your goals and needs.
How much can you spend each year in retirement without running out of money?
A recent study revealed that only 21 percent of retirees feel confident about drawing down their assets.1 Your advisor can help by providing you with 1:1 financial advice based on your goals and needs, including a withdrawal strategy to provide you with income.
Rethinking the four percent withdrawal rule
For the last couple of decades, many people have followed the “four percent rule” for retirement withdrawals. Based on an analysis of 50 years of market data, the rule says that retirees can withdraw four percent of their initial retirement portfolio balance, adjust that dollar amount each year to factor inflation and have enough to live on for the next 30 years.
This can be a good rule of thumb, but changing times (and changing markets) mean that a more personalized approach could help you enjoy the wealth you’ve worked so hard to earn.
Flexibility that fits your needs
What might make better sense for you than the four percent rule? Together, you and your advisor can develop a personalized, flexible withdrawal strategy that considers your goals, time horizon and risk tolerance. An effective strategy:
- Establishes the timing and order for withdrawals from various accounts to help increase tax efficiency.
- Defines the approach to generate cash flow while keeping some assets growing, using a mix of three basic elements:
- A cash account for day-to-day money
- A short-term reserve to cover emergencies and generate consistent income
- Long-term assets for potential growth
- Helps you and your advisor monitor your withdrawal strategy over time, based on your age and account values, and discuss adjustments when needed.
Your advisor will also factor economic conditions into your strategy, including:
- Lower federal tax brackets that went into effect starting with the 2018 tax year (as a result of the Tax Cuts and Jobs Act)
- Future interest rate increases that could result in lower returns on stocks
- Changes to inflation and the potential impact on your investments
- Lower bond return rates that might necessitate a change in your asset mix
Talk to your financial advisor about how a flexible withdrawal strategy can be a key contributor to your financial confidence in retirement. Having a plan in place for adjusting your withdrawals to adapt to both market and life events, can help you feel more secure about having enough money for the long term.